In the 'week ahead' we take a look at whether stocks are about to plunge...
August 22, 2022
Will the TPP short sellers profit this week? Are markets about to plunge?
Welcome to another week in the markets.
Things are looking bleak, and the stock market is slowly starting to realise this again, but don’t worry, most of our active strategies are short the market, and most buy or flats are sitting on the side-lines.
The rally in the US made little sense, but there is a lot of money in cash waiting desperately to get back in. We feel it could be waiting a little while longer though as there is little good news out there now earnings season has (almost) come to an end.
It was another session of losses for most Asian markets overnight, continuing the theme from the end of last week.
Stocks tumbled on Friday as Wall Street’s summer rally faltered and rate hike fears resurfaced, leading the major averages to end the week on a sour note.
The S&P 500 slid 1.29% to close at 4,228.48, while the Dow Jones Industrial Average tumbled 292.30 points, or 0.86%, to 33,706.74. The Nasdaq Composite dropped 2.01% to settle at 12,705.22.
For the week, the S&P edged 1.21% lower, while the Dow slipped 0.16%. The tech-heavy Nasdaq closed out the week down 2.62%.
Friday’s halt in Wall Street’s summer rally came as minutes from the Federal Reserve’s July meeting and comments from St. Louis Federal Reserve President James Bullard indicated that the central bank would likely continue hiking rates in the near term, putting a damper on investors’ hopes of a slowdown.
Despite the week’s moves, many investors and traders are holding out hope for a bounce back.
“I wouldn’t expect a complete reversal going back to the June lows or something like that, however, the choppiness we’re seeing today and this week does reflect a lot of the bear case that’s out there,” said FBB Capital Partners’ Mike Bailey. “I think seeing the market trade sideways or seeing a bit of a pause in that rally definitely makes sense based on some of the facts that we’re seeing out there.”
Meanwhile, Bed Bath & Beyond shares cratered more than 40% after Ryan Cohen dumped his entire stake in the retailer. The move seemed to dampen sentiment among meme stock traders who have bet big on the company in recent months.
In other news, about a $2 trillion notional value worth of options contracts expired on Friday. Options expirations can add volatility to markets as some holders may be forced to move into their positions.
So far this morning Europe has carried on the rout, as German utility Uniper fell 6.9% in early trade amid warnings of further cuts to Russian gas supply to Europe, which have already pushed the company to seek a state bailout.
Contrary to that at the top of the Stoxx 600, shares of Fresenius rose 5.5% after the German health care group announced the appointment of new CEO Michael Sen from Oct. 1, replacing Stephan Sturm.
This week we will see a raft of purchasing managers index (PMI) surveys on Tuesday, with the contraction seen in mainland European manufacturing expected to continue apace.
A US GDP revision brings potential volatility for the dollar, although traders will likely spend more time focusing on the PCE inflation data and Jerome Powell’s Jackson Hole appearance as they look for signs that inflation has topped out.
Earnings data has certainly slowed after the mania of earnings season, although Zoom, NVIDIA, Salesforce, and HP will ensure that tech remains in focus this week. Also keep an eye out for updates across the fashion world, with Gap , Urban Outfitters, and Abercrombie & Fitch providing their latest figures.
The Jackson Hole meeting at the end of the week should provide some new information as to whether central bankers will provide more hawkish commentary regarding their fight against inflation.
On that same note, China's central bank cut rates again overnight, as it looked to support the economy and a struggling housing sector, but this has failed to provide anything more than a modest lift in sentiment.
We’re on the back foot again this morning but most of the active strategies on The Portfolio Platform are short the market so this drop has been expected and anticipated so don’t worry. Only time will tell us whether it will continue.
The remainder of today should be a fairly quiet one with no major figures out, but that doesn’t mean there won’t be a big move if stops are hit and sentiment worsens.
One active strategy to keep an eye on this week might be European Stock Exposure. This is a strategy that made 46% in 2020 and 48% in 2021, whilst taking a limited risk. From conversing with the trading team who control this strategy, they're quietly confident that 2022 will also prove to be an excellent year, despite a challenging start to the year.
Looking at their portfolio right now they hold SELL positions in the following:
With a small S&P buy trade as a hedge.
If the markets do fall, it's safe to say they will be well positioned to profit.
Does your portfolio have protection against a falling market?
How would a 10% fall in global equities impact your investment portfolio?
Click here to view ESE.
Good luck to all and here’s to a good week in the market.
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